Tips for Buying a Property with Existing Tenants

One of the first questions we ask our clients that are purchasing a property is: “Will you be moving into the property after settlement?”

The answer is normally either “yes, I can’t wait to move in” or “no, I am not moving in as this is an investment property”.

But sometimes there is a third scenario- where our client has found their dream house that they want to move into as soon as possible but there is a tenant in the property.

Whilst this situation is less than ideal, there are still a couple of options available for you to consider. Part of our service includes reviewing the draft contract prior to signing. This is particularly important when a tenant is involved as we can check that the critical dates ‘line up’ in relation to both applicable notice periods, and the transfer (stamp) concession eligibility requirements – read on to find out more.

Getting the Tenant to Leave

It’s important to know what type of Tenancy Agreement is in place, as this determines the notice period that must be given to the tenant to require them to vacate.

For a periodic agreement the tenant has four weeks to vacate when a sale contract is in place for the property.

However, if there is a fixed term agreement in place the tenant has the later of 2 months from the day of notice, or the date on which the fixed term agreement ends to vacate the property.

Notice is not normally given until the contract goes unconditional (as understandably, the Seller won’t want to kick their tenant out unless they know that the property is definitely being sold), so it is important to allow sufficient time between the notice being given and settlement.

Of course, the tenant can agree to leave early at their own discretion but with no guarantee of this, it’s important to understand the relevant notice periods at the time of entering into a contract.

Transfer (Stamp) Duty Concession Requirements

Transfer Duty (often referred to as ‘stamp duty’) is a government tax charged on most property transactions, with the amount payable dependant on the purchase price and whether or not the purchaser can claim a concession or exemption.

As an owner/occupier intending to move into the property, you may be entitled to claim either the First Home Concession if you have never owned a property before or the Home Concession if you have previously owned property before. These concessions mean that you save a significant amount on the ‘full rate’ of transfer duty, which is otherwise payable (including if you are purchasing the property as an investment).

A key eligibility requirement to receive either concession, is that any tenants occupying the property under an existing tenancy agreement must move out when their lease expires or within 6 months of settlement at the latest, whichever is the earlier. This also applies to previous owners who may be living in the property for a period after settlement.

If you claim a concession and the tenancy doesn’t end within the required timeframe you will then need to notify the Commissioner of State Revenue by completing a Notice of Reassessment and pay the higher stamp duty amount. Therefore, it is very important to understand the eligibility requirements and ensure that you can comply with them.

Taking Possession

Once the tenant has vacated you will likely want to inspect the property to ensure no damage has been caused and that it has been appropriately cleaned and the tenant has otherwise complied with their end-of-lease obligations.

Any issues that come up at the inspection should be discussed with the selling agent and managing agent (if applicable) so that it can be dealt with by them and the tenant’s bond utilised if possible.

In the event that this is not possible, we can provide advice on any other options you may have before settlement.

Enterprise Legal’s Top Tips

1. Talk to the selling agent when putting in your offer to find out about the terms of the tenancy and if the tenant has any intentions of vacating earlier than required;
2. Have the contract reviewed by us prior to signing and discuss any concerns you have about the tenancy with us at the same time; and
3. Understand that if you claim a stamp duty concession and subsequently do not meet all of the requirements, you have an obligation to notify the Queensland Revenue Office and you can be subject to penalties for giving false and misleading declaration if you do not give that notice.

Are you in the process of purchasing a property? Contact Enterprise Legal's experienced conveyancing team now for more expert advice:

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